The war against terrorism has been victoriously concluded and the terror stricken epoch that obstructed the development of Sri Lanka is over.
The talk of the day is the next war against poverty. Creating conditions for rapid economic growth, combating poverty and developing the country involve varied social, economic, physical and legislative issues.
Lining up and organizing the country's resources for productive use is an onerous task. Land is a prime resource basically required for any type of development and making land available in correct locations at the right time is vital to facilitate this development. The policies and procedures of disposing state land should be clear and transparent to gain confidence of the developers and investors. Ambiguous policies and procedures are always detrimental to the growth of the real estate industry. The decisions of the three Supreme Court cases delivered last year clearly indicated the importance of adhering to straight forward methodology to dispose of state property.
The LMS site which reverted to the state after the privatisation was annulled. |
The main argument of the petitioners of these cases was that leasing land to private developers which has been acquired by the government for public purposes is contrary to law. In addition several other unlawful actions by the respondents had been quoted. Two of the cases were against the lease of land at Kalapaluwawa, Rajagiriya for a golf course and in Kandy for a private hospital by the Urban Development Authority (UDA).
The other case was in connection with the lease of land at Attidiya to a private developer by the Sri Lanka Land Reclamation and Development Corporation (SLLR and DC) for a recreational project. The Court decided to cancel the leases and the land reverted to the government.
The practice of releasing state land to the private sector for development is a worldwide phenomenon. The familiar argument for governments to make state land available to private developers is for the purpose of stimulating economic growth. This is believed to be associated with employment creation and income growth. Even China, a leading communist country, introduced the sale of state land to local and overseas buyers for development to boost the economy. It is amazing that Singapore and Hong Kong, two small countries where land is an extremely limited resource, achieved enormous economic gains through a well managed real estate business by the state sector.
The state sector in Sri Lanka owns the major portion of land resources in the country and state ownership has been estimated at 80% of the total land area. The number of ordinances enacted during the British Regime in the 19th century provided legal provision to declare every land for which the evidence to prove ownership rights were not available as crown. A major portion of state land available in the country today is what was declared as crown during the British Regime. In addition the land acquired under the provisions of the Land Acquisition Act falls into the category of crown or state land. The total stock of state land is presently owned and managed by various government departments, local authorities and statutory organizations. The land grant system was changed to a system of land sale under the guidance of the new rules and procedures published in the Ceylon Gazette of July 1833. This was the origin of the private enterprise, land market and interplay of market forces in Sri Lanka.
The sale of crown land to capitalist investors for the development of the plantation sector continued until the enactment of the Land Development Ordinance in 1935. The ordinance provided a definite policy and the procedure of systematic development and alienation of crown land to the peasant class in the rural Sri Lanka. Subsequently in 1947, the Crown Lands Ordinance was enacted to make provision to issue grants and leases to allocate crown land both in rural and urban areas for all types of use. It is pertinent to indicate that the regulations and orders that carried detailed procedure of implementation of the principles and provisions of the two enactments were formally approved as provided in the law.
These documents carried step by step implementation procedure to avoid any deviations and malpractices. While the two ordinances were remaining as instruments for the alienation, utilization and development of crown land, very different policy measures were introduced for disposal and development of state land with the opening of the economy in Sri Lanka in 1977. A couple of new enactments were introduced in the latter part of the seventies to make provision to establish a novel set of organizations to minimize the excessive bureaucratic hurdles in the public sector real estate business.
Four institutions established were assigned prominent roles in executing real estate activities. The Greater Colombo Economic Commission that was later converted to the Board of Investment (BOI) carried out investment promotion activities. Development of Export Processing Zones and Industrial Estates to make land available for export oriented industries were other prominent tasks assigned to the BOI. The Urban Development Authority (UDA) was established to promote integrated planning and implementation of economic, social and physical development in the areas gazetted under the law.
The UDA developed different localities to make land available for housing, industrial, commercial and hotel projects. The National Housing Development Authority (NHDA) took measures for housing development in the country. Reclamation and development of low lying areas and releasing reclaimed land for development were undertaken by the SLLR and DC. All these organizations were established to promote development with the participation of the private sector.
The management and administration of the affairs of these statutory bodies are vested with the Board of Management established under the provisions of the laws under which the organizations were formed. These organizations were provided with wide powers to acquire private land and to dispose of the land acquired or held by the organizations for development. Acquisition of land on the request of these organizations is done under the provisions of the Land Acquisition Act by the Land Ministry in keeping with approved procedures. However, the important point that needs to be stressed is the non availability of a firm and formal procedure of implementation of the principles and provisions available in the respective enactments for disposal of state land.
The procedures initiated in the late seventies and early eighties are still being followed by all the organizations. Once the development sites and the developers are selected and the terms and conditions of disposing the land are finalized, the projects are submitted for approval of the Board of Management of the organization. The projects that are approved by the Board of Management are submitted for the approval of the respective minister requesting to obtain the approval of the Cabinet of Ministers. The approval of the Cabinet of Ministers is the final approval needed for the organizations to proceed with the projects.
In order to streamline the policies and the procedures, a couple of circulars were issued by the Presidential Secretariat in 1995 and 1996 that dealt with the issues such as the terms of lease, calculation of lease rentals, rent review and terms of lease. A number of circulars that were issued one after the other dealt with the same issues without introducing a definite and clear policy for releasing state land for development.
Under the circumstances, the Secretary, Ministry of Lands issued a circular in March 2002 indicating that a National Policy to govern the use and alienation of state land and land vested in public enterprises is being formulated. It has become highly opportune to come out with a concrete policy and procedure to release state land for development to attract both local and foreign developers and investors as the war is over and the country is free of terrorism. A constructive national policy not only on the disposal of land but on land management in total would definitely be a major factor to boost the economy.
Contribution of the professionals well versed in real estate and marketing disciplines is absolutely necessary in formulating real estate management and marketing policies as practised in developed countries. Non professional advice could be highly detrimental to the real estate industry. It would be beneficial in this regard to quote a recommendation made by the members of a committee which is contrary to real estate principles and the legal provisions. The committee has recommended to move away from granting long term leases as it does not serve any useful purpose and to grant freehold title when releasing state land. The main purpose of granting a lease is to impose conditions mainly to control and ensure the timing of the proposed development and the payment of the due rentals.
Further it is necessary to understand that the leasehold interest is a terminating or wasting asset and comes to an end after the term of the lease. If the lease is not renewed the property will revert back to the government without payment of any compensation for the land. In case of a freehold grant, full compensation at market value at the time will have to be paid if the land is acquired back. As recommended the granting of conditional freehold title is not a legal provision available in Sri Lanka. Once a freehold grant is made the buyer can either keep the land as an investment or sell it without undertaking any development. Further it is important to mention that the main purpose of releasing state land to the private sector is not to sell and collect the proceeds but to achieve proposed development and associated benefits.
An effective and long lasting property business requires a favourable environment and the provision of several services in addition to investment promotion activities. The macro economic issues such as trouble free political, cultural, social, legal, and trading factors and micro economic issues such as attractive incentive packages, labour supply, housing and service facilities create a favourable environment to convince investors. In addition the provision of certain services is equally important. Making the reliable information and data available on the land market, real estate development and the economy are highly important to investors for their investment decisions.
A fast-track method of granting building approval and making required provisions available for large scale development are basic requirements to make an appealing investment scenario. Past performance reveals that investment promotion affairs were given high priority while most other factors were not considered equally. All these factors are part and parcel of investment promotion. One of the main weaknesses in the past was that the state organizations empowered to carry out real estate business did not act jointly under a national real estate marketing plan. Four organizations had individual plans and targets which did not dovetailed in to a national plan.
Key property marketing organizations were not adequately organized to maintain a sustainable real estate business. Apart from the lands that were available in free trade zones, industrial estates and in commercial project areas such as Echelon Square, Colombo, the supply of land in other areas had not been planned to maintain an uninterrupted supply. The lands identified for certain approved development projects were not free of encumbrances. There were instances that some developers had to wait for long periods until the encumbrances of the lands identified for them were cleared. As the supply of land was not properly organized, it became a critical issue.
The criterion adopted to select the developers was not uniform. The developers whose projects were approved by the BOI were given preferential treatment by allocating land directly. However the general government directive was that alienation of state land should be done in accordance with clear and transparent procedures preferably by public tender or public auction.
National and international real estate marketing is an expert operation. Planning, organization and management of the marketing activity require an in depth study. It would indicate the most effective manner to commence and operate the business. Being an operation that has several activities, an organization involved with property marketing requires experienced professional input in real estate management and real estate marketing. In consideration of the requirement of the expertise staff, intricacy of the operation and the size of the country, it would not be advisable and practical to have several organizations to undertake real estate marketing on an effective manner.
Accordingly it will be beneficial to the country to have one organization to deal with every aspect of national and international marketing of state property. Such an organization for Real Estate Marketing (REM) should be established by an Act of Parliament should be legally empowered to undertake every activity connected with getting state lands vested, making vested land developable and disposing land for development.
Apart from state land, the REM should be provided with legal provisions to bring private land to the market with the agreement and participation of the selected private land owners.
The REM will either sell or lease private lands on behalf of the owners or develop private lands using varied public private partnership techniques such as joint venture, land readjustment or land pooling without resorting to compulsory acquisition procedure.
Sustainable real estate business requires an uninterrupted supply. As indicated, the entire stock of state properties is under the ownership of the government departments, local authorities and statutory organizations. However most property rich organizations do not have up to date and reliable information of their property assets. A significant extent of these properties are either encroached or without proper services. Certain properties are underutilized. Even though the plans of all state properties are available with the Department of Survey, it is difficult to identify these properties on ground without undertaking land surveys.
The practical solution to the problem of identifying all state lands is the initiation of Public Sector Property Audit (PSPA). This is an exercise to prepare an accurate and up to date data base of state sector property assets. Collection of legal, physical and location attributes of all state assets including building and occupancy details and the availability of services are necessary. The provisions of the Title Registration Act need to be used specially in the Western Region to identify state properties.
The REM could be assigned to undertake the operations of the PSPA with the participation of the relevant organizations including the Department of Survey. In the process of undertaking the PSPA, properties in batches covering the entire island can be identified for marketing. It should be the responsibility of the REM to make those properties marketable and readily developable.
The properties identified are suggested to be released to the market once or twice a year. The number of properties to be released at a time could be decided on the condition of the real estate market at the time. Locally marketable properties can be disposed of by the institutions currently engaged in property marketing using the available provisions with clear and transparent procedures for housing, agricultural, small scale industrial, commercial, religious and institutional uses.
Preparation of development proposals, design and building details and a pre-feasibility study for every property listed for disposal by the REM is a basic requirement. The information so collected is necessary for the preparation of a Development Brief (DB). The properties brought to the market should be accompanied with a DB and should contain the basic core information and the most desirable use of the site with planning and building guidance. In addition the form of disposal and selection criterion of the developers should be included.
The form of disposal of each and every property should be on the basis of public tender or auction. The tender procedure provides a chance to all interested parties to make a bid. It creates an avenue to achieve the best offer for a site rather than making a direct allocation to a party probably with a concession package. It is not intended to discuss the marketing process that involves lot of issues. However in Sri Lanka which has not yet emerged as a country for real estate investment, it is necessary to create an image ahead of commencing the marketing process. Presently the real estate market and development activities in Sri Lanka are not newsworthy items to regional and international real estate publications.
A well organized property market and effective marketing campaign could change this situation. The proper management and the use of a huge amount of public sector landed property will have a considerable effect on the country's economy provided an effective marketing and development campaign is introduced.
The writer is a Fellow Member of the Institute of Real Estate and Valuation, Sri Lanka. He can be contacted on sena@makestuffhappen.com |
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